ANNUAL REPORT 2019 in the Event of Conflict in Interpretation Or Differences Between This Annual Report and the Swedish Version, the Latter Will Prevail
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ANNUAL REPORT 2019 In the event of conflict in interpretation or differences between this annual report and the Swedish version, the latter will prevail. 2 VOLVOFINANS BANK 2019 SUMMARY JAN–DEC 2019 Operating profit, SEKm Return on equity 600 12% 500 10% 400 8% 300 6% 200 4% 408 502 516 8.8% 10.1% 10.7% 100 2% 0 0% 2017 2018 2019 2017 2018 2019 Common Equity Tier 1 capital ratio Credit losses/lending 25% 0.10% 20% 0.08% 15% 0.06% 10% 0.04% 5% 20.6% 18.1% 19.4% 0.02% 0.05% 0.03% 0.04% 0% 0.00% 2017 2018 2019 2017 2018 2019 VOLVOFINANS BANK 2019 3 ANNUAL REPORT 2019 INTRODUCTION AND FINANCIAL STATEMENTS 8 Message from the CEO Credit risks and credit losses 25 Appropriation of profits 10 Sweden’s Volvo dealerships 13 CAPITAL RAISING Capital base in 2019 Rating 26 Five-year summary 14 Events after the balance sheet date 12 Directors’ Report 28 Income statement Expected future developments Group structure 29 Balance sheet Corporate governance report Significant events 30 Changes in equity during the financial year 22 Sustainability report 31 Cash flow statement Information on risks and uncertainties 24 Personnel Volumes/lending Remuneration Earnings NOTES 34 Note 1. Information about the bank Note 10. Net income/expense from 93 Note 27. Derivatives – Assets and Note 2. Risk and capital management financial transactions* liabilities 35 Credit risk Note 11. Other operating income 94 Note 28. Prepaid expenses and accrued income 37 Future regulations Note 12. General administrative expenses 95 Note 29. Liabilities to credit institutions 47 Counterparty risk 82 Note 13. Depreciation, amortisation and securities issued 48 Encumbered assets and impairment of property, plant and Note 30. Retail deposits and 49 Concentration risk equipment and intangible assets borrowings Market risk Note 14. Other operating expenses Note 31. Other liabilities 52 Currency risk Note 15. Net credit losses Note 32. Accrued expenses and Residual value risk Note 16. Appropriations deferred income Equity risk in other operations Note 17. Tax on profit for the year 96 Note 33. Subordinated debts Operational risks Note 34. Untaxed reserves 53 Pension risks Balance sheet Note 35. Equity Liquidity risk 85 Note 18. Chargeable treasury bills, etc. Note 36. Carrying amount by category of financial instrument and fair value 56 Strategic risks Note 19. Loans and advances to credit disclosures Reputational risks institutions 99 Note 37. Pledged assets and contingent Note 20. Loans and advances to 57 Capital adequacy analysis liabilities customers 64 Note 3. Accounting policies 100 Note 38. Operating leases 88 Note 21. Bonds and other debt 74 Note 4. Segment reporting securities Note 39. Subsequent events 89 Note 22. Shares and interests in Note 40. Related parties Income statement associates and other companies 101 Note 41. Specification to cash flow 78 Note 5. Netinterest income 90 Note 23. Shares and interests in statement Note 6. Lease income and combined net Group companies interest income Note 24. Intangible assets 102 Signatures of the Board Note 7. Dividends received 91 Note 25. Property, plant and of Directors 79 Note 8. Commission income equipment, fixtures and fittings, and 104 Auditor’s report Note 9. Commission expense lease assets 110 Board of Directors, auditor 92 Note 26. Other assets and senior executives 4 VOLVOFINANS BANK 2019 VOLVOFINANS BANK 2019 5 6 VOLVOFINANS BANK 2019 INTRODUCTION AND FINANCIAL STATEMENTS VOLVOFINANS BANK 2019 7 INTRODUCTION COMMENTS FROM THE CEO Volvofinans Bank’s operating profit increased by SEK 14 million in 2019, to SEK 516 million. The return on equity also increased, to 10.7%. This is another record profit for the bank, achieved against a backdrop of slowing growth in the Swedish economy, which has not yet had a notable impact on our earnings. e experienced another year of strong Volvofinans continues to make significant investments in preven- sales in the car market, with 356,000 car tive measures in cyber security and to ensure compliance with registrations – the third highest number to the provisions of the PSD2 Directive and Basel IV. In terms of date. The bank’s lending expanded by SEK efficiency, it is primarily in the area of robotic process automation 0.6 billion to SEK 37.9 billion as Volvo Cars (RPA) that we have been running concrete initiatives. We are Wsold 65,000 cars in Sweden, down slightly from 70,000 in 2018 automating monotonous, time-consuming processes, thus freeing due to longer delivery times. Instead, the main driver behind our up time and resources that our employees can devote to other increased earnings is the very strong used car market, which also tasks. In 2019, Volvofinans Bank introduced a number of robots in has a positive impact on earnings from our our administration. In addition to monitoring car sales business and resulted in reversals of what is happening in fintech, as a niche bank previous impairment losses. As I have noted for car users, or mobility – which is where previously, there are several reasons behind things are going – we also need to monitor the strong demand for used cars. They are what is happening on the technological front exempt from the higher tax on new cars and in the automotive industry. From the bank’s are a smaller investment if the customer is perspective, it is clear that electrification is uncertain about the choice of fuel, and they really taking off on a broad front. In 2019, just are also seeing growing demand from foreign over 40,000 rechargeable cars were sold, buyers, which is pushing up prices. accounting for 11% of the total market. For It is in our Fleet business area that 2020, BIL Sweden expects the figures to these effects arise, which explains why increase to 100,000 and 30%. our large-customer unit was able to post The year 2020 looks set to become record earnings of SEK 172.5 million. the first of several years of transition, from The segment is growing by over 5% both fossil fuel-powered vehicles to fully electric in terms of loan volume and contract “From the bank’s or hybrid vehicles. Yet we mustn’t forget numbers and is thereby consolidating its perspective, it is clear that Sweden has nearly 5 million passenger market-leading position. By far the bank’s cars in use, which means that fossil fuels largest business area, Cars, reports earnings that electrification is will remain the dominant fuel in use on our of SEK 324 million, which is in line with really taking off on roads. Whatever the situation, Volvofinans last year (2018 adjusted for extraordinary a broad front” Bank looks forward to financing a growing income). This segment includes our card share of electric vehicles, and later this year business and the CarPay app, which we will see the first financing contracts for had a negative impact on earnings after Volvo XC40 Recharge and Polestar 2. continued investments in product development and the launch The outlook for our new services is bright, but while making of new digital services. A mobile payment service for filling progress in terms of the bank’s mobility we – and the rest of the up at Tanka service stations is one of the digital services that world – also face a challenge in managing the difficult COVID-19 were launched during the year. Finally, I should add that our pandemic. We are confident, however, that our development Trucks business also had a successful year. Earnings came in structure and our drive will enable us to remain one step ahead at SEK 19.5 million, which is an increase of as much as 48%. even in a recessionary environment. I would really like to take Volvo Trucks had a very successful 2019, maintaining its sales this opportunity to thank all our wonderful employees at the volume in Sweden with 2,636 heavy trucks sold. bank for their tremendous efforts in 2019. Looking at our earnings for the year, it is also clear that the bank has benefited from the rise in market interest rates, which Conny Bergström in December re-entered positive territory after the Riksbank’s CEO rate hike, after nearly five years of remaining below zero. Volvofinans Bank AB 8 VOLVOFINANS BANK 2019 INTRODUCTION JAN–DEC 2019 KEY FINANCIALS Operating profit: SEK 516m (502) Return on equity: 10.7% (10.1) Lending at 31 December: SEK 37.9bn (37.3) Net credit losses: SEK 16.0m (13.2) Common Equity Tier 1 capital ratio: 19.4% (18.1) VOLVOFINANS BANK 2019 9 INTRODUCTION SWEDEN’S VOLVO DEALERSHIPS IN 2019 A COMPREHENSIVE SALES NETWORK VOLVOFINANS BANK Sweden’s Volvo dealers form a nationwide retail network that includes AND THE VOLVO DEALERS 54 privately owned dealerships and two listed dealerships with around The bank’s mission is to raise money for financing the dealers’ loan and 239 sales outlets and over 266 workshops. In addition, the general lease contracts; in other words, to support their business operations. agent, Volvo Car Sverige AB, also has stakes in three sales companies. Working in close collaboration with Volvofinans Bank, Sweden’s Volvo Stock exchange-listed Bilia AB owns the largest passenger car company, dealers are market leaders in terms of vehicle-related services such as while AB Volvo owns the largest truck company. These listed companies financing and payment solutions. account for nearly 40% of Volvo and Renault sales in Sweden’s car and truck markets, respectively. VOLVO DEALERS’ CREDIT RATING The dealer network comprises 31 different owners and groups of Each dealer’s credit rating is one of the indicators that the bank owners.